The division bench of the High Court of Gujarat, in a recent decision held that the if the Assessing Officer(AO) has sufficient reason to believe that the assessee had escaped income, then he can initiate reassessment proceedings under s. 147 of the Income Tax Act, 1961, even after the period of 4 years.Such an action is valid even at the time of proceedings of scrutiny assessment.
The assessee, in the instant case is a limited company, against which the Assessing officer has passed scrutiny assessment. During the pendency of appeal against the said order, the proceeding of re-assessment has been initiated against the assessee under Section 148 of the Income Tax Act, on the premise that the Authority has reason to believe that the income chargeable to tax on escape assessment. Being aggrieved, the assessee approached the High Court.
It was contended on behalf of the petitioner submitted that the impugned notice issued under Section 148 of the Income Tax Act, is beyond the period of 4 years from the end of relevant assessment year. It has also been submitted that the scrutiny assessment under Section 143(3) of the Act has been undertaken and therefore, since the notice is issued beyond the period of 4 years, it is not open to reopen the assessment.
The division bench comprising of Justices Akil Kureshi and A.J shastri found that the Assessing Officer had a “reason to believe” that the assessee has escaped income during the relevant assessment years which is sufficient to initiate proceedings under section 147 against the assessee.
The Court noticed the decision of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. Income Tax Officer, Nagpur, in which the Apex Court observed that “So far as the first condition is concerned, the Income Tax Officer, in his recorded reasons, has relied upon the fact as found by the Customs Authorities that the appellant had under invoiced the goods it exported. It is not doubt correct that the said finding may not be binding upon the income tax authorities but it can be a valid reason to believe that the chargeable income has been under assessed. The final outcome of the proceedings is not relevant. What is relevant is the existence of reasons to make the Income Tax Officer believe that there has been under assessment of the assessee’s income for a particular year. We are satisfied that the first condition to invoke the jurisdiction of the Income Tax Officer under Section 147(a) of the Act was satisfied.”
The Court also noticed the observations made by the Supreme Court inIncome Tax Officer vs Selected Dalurband Coal Co. Pvt. Ltd. In this case, the Court held that “It may be well be that the assessee may be able to establish that the facts stated in the said letter are not true but that conclusion can be arrived at only after making the necessary enquiry. At the stage of the issuance of the notice, the only question is whether there was relevant material, as stated above, on which a reasonable person could have formed the requisite belief.”
In the light of various judicial pronouncements, including the above, the division bench opined that the authority has the power to issue notice for reassessment when it is armed with the tangible material in the form of specific information. It was further held that, “we are of the opinion that function of the assessing authority at this stage is to administer the statute and what is required at this stage is a reason to believe and not establish fact of escapement of income and therefore, looking to the scope of Section 147 as also Sections 148 to 152 of the Act, even ifscrutiny assessment has been undertaken, if substantial new material is found in the form of information on the basis of which the assessing authority can form a belief that the income of the petitioner has escaped assessment, it is always open for the assessing authority to reopen assessment.”
While concluding, the Court added that, “As we found that for the exercise of power of reopening of assessment after a period of 4 years, a proper procedure is observed by the Authority, specific approval has been obtained from the competent Authority and upon perusal of original file, we have satisfied ourselves that the approval has been accorded in a proper manner by the competent Authority and since the notice is issued based upon substantial compliance of statutory provision, the Authority has acted well within the bounds of his powers and the Authority has issued notice.”
Read the full text of the Judgment below.
